Brazil vs India: Why both need to save more

Rebecca Wilder compares the growth challenges facing Brazil and India. In short, both countries need to increase their savings rates in order to boost overall investment and, in turn, worker productivity.

Brazil in particular must re-arrange its consumption/savings relationship, as the share of investment as a percentage of GDP has changed little over the past decade. Brazil's experience is in sharp opposition to India, which continues to increase overall investment, primarily through increased FDI.

Nevertheless, India, with its burgeoning labor supply, would benefit from even more investment, ideally through increased savings:

More domestic saving is likely needed in India... (which) gets a bigger bang for each investment buck spent, so save more and supplement the inward FDI.

In stark contrast is Brazil, an economy that is clearly saving at a much lower rate than its peers. The consumption is a large 63.1% of GDP, essentially unchanged over the latest decade. And for a developing economy, the investment share is remarkably low in levels, 16.4% of GDP in 2008 (compared to India's 32.2% share).

In all, the saving and investment story adds up to a level of productive capital stock. Without investment, there is no capital stock growth. And without capital stock growth, there is little productive GDP growth.

Wilder points to the share of capital per worker in India, Brazil, and China, which exposes Brazil as a serious laggard:

If Brazil is to continue growing, its share of capital per worker has to change. Hence, the need for greater savings:

Brazil is not setting itself up for sustained growth. The country is now enjoying the economic benefits of policy reform and open capital markets, an economic adolescent if you will. The next step in Brazil's development is clearly to adopt policies that grow saving and investment.

If either country is to efficiently capitalize on its young and agile workforce , it will need to start by investing in the necessary capital to increase the productivity of its working population. Otherwise, they both face being left in the dust by other emerging economies. Most noticably, of course, China.